Page 19 - DIY Investor Magazine | Issue 39

‘THE NEXT STEPS FORWARD WHICH COULD SEE RADICAL ACTION TO UNLOCK VALUE AND POTENTIALLY DELIVER HIGH RETURNS’
AVI Global Trust (AGT) has been an investor in this business for some time, and is set to benefit as any realisations are likely to provide a significant return on the 46% discount at which the shares were previously trading—Symphony’s shares were up 21% in September. In fact, AGT’s strategy of buying companies at a discount to their fair value, in particular investment trusts, put it in a strong position in such an environment.
The manager, AVI, has recently weighed in on the situation
at Hipgnosis Songs (SONG), having been buying shares at a deep discount to SONG’s NAV. The situation is complex, but with the shares on a wide discount, the board and shareholders are negotiating the next steps forward which could see radical action to unlock value and potentially deliver high returns which are not dependent on the health of the economy or the direction in the market.
Private equity is an area where discounts are wide, and we have been vocal in highlighting the value we see in these trusts. Symphony’s realisation is one action in this space, another is Pantheon International’s (PIN) decision to conduct a £200m buyback of its shares. Companies in the sector have been loath to do this, but PIN’s success may encourage others to change course.
According to the company’s calculations, the programme so far has added c. 3.4% to the 31/08/2023 NAV, a risk-free return that to us looks very attractive over a period in which the FTSE All Share is marginally down. In fact, PIN’s shares are up c. 8.6% since that August NAV, the discount having come in from c. 40% to c. 33%. We think this is a pretty attractive return in the current market environment. We will shortly be initiating research on PIN, click here to be notified.
Boards who are wavering on the decision may do well to consider the words of Warren Buffet in his latest shareholder letter: “The math [sic] isn’t complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices.... Gains from value-accretive repurchases, it should be emphasised, benefit all owners—in every respect.”
Alongside AGT, another trust which is well-placed to benefit from a pickup in corporate activity is MIGO Opportunities (MIGO), which is heading to AVI under its old manager Nick Greenwood.
Nick has spoken publicly about the huge opportunity he was seeing across the board this summer, and when we met with him last week he reaffirmed how excited he was about the number and scale of the opportunities in front of him.
Nick tells us he is particularly excited about discounted trusts in the Vietnam and India sectors at the moment, but he has been finding opportunities all over the place. “We are likely to look back to the autumn of 2023 as the perfect time to invest in investment trusts,” he tells us.
‘WHEN THE SHARE COUNT GOES DOWN, YOUR INTEREST IN OUR MANY BUSINESSES GOES UP’
We will be publishing an updated note on MIGO in the coming weeks with all the details, you can add the trust to your watchlist here to receive a notification.
One way boards can seek to address significant discounts is to make a performance-conditional tender offer. In our view, this is an attractive feature of the investment trust sector in which boards can heavily incentivise managers to perform well in a way which clearly benefits shareholders.
‘WE ARE LIKELY TO LOOK BACK TO THE AUTUMN OF 2023 AS THE PERFECT TIME TO INVEST IN INVESTMENT TRUSTS’
One such example was the recent decision of the board of European Opportunities Trust (EOT) to declare it would make a tender offer for 25% of the shares if the trust underperformed its benchmark over the next three years.
In our view, this further tilts the risk/reward calculation in investors’ favour. One important element is the presence on the shareholder register of activist investor Saba Capital, whose founder Boaz Weinstein has been vocal about the opportunity to generate risk-free returns from corporate activity in the investment trust sector.
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Nov 2023
DIY Investor Magazine ·